Wichita considers water rate increase

Everyone who has taken a hard look at the city's water numbers agrees a rate increase for 2012 is inevitable.

But hearing a report on one plan for that increase left Mayor Carl Brewer frustrated on Tuesday. After all, there already have been three increases since January 2010.

"Costs go up," Brewer said after the workshop, "but the revenue in those households are not."

He said the City Council needs to sit back and determine what really is needed to meet costs.

"We need to find what we can live with and what we think the citizens can endure, from single-family households to retired citizens to corporate businesses," Brewer said.

They'll get their chances. Multiple public hearings will be scheduled, starting with one at a council meeting in early September, City Manager Robert Layton said.

Two plans proposed so far take two very different approaches.

The Water Utilities Advisory Committee has recommended that the city impose a 5.9 percent rate increase on water and sewer bills across the board for residential and commercial customers, plus a 4 percent increase for wholesale users. Wholesale customers receive only water service from the city.

Wholesale customers include Bel Aire, Benton, Derby, Kechi, Park City, Rose Hill and Valley Center.

Tuesday, the council heard a recommendation from Raftelis Financial Consultants, a firm hired by the city to analyze the Water Department's costs and rates.

Raftelis also recommended rate increases for 2012, but they aren't the same across the board. They are set to begin closing a gap that has resulted in residential customers subsidizing commercial and wholesale customers.

For 2012, residential customers would pay 3 percent more for water than it costs the city to deliver it to them — $42.4 million for service that costs $41.1 million to provide.

At the same time, commercial customers would underpay the city by nearly 10 percent in 2012. It would cost the city $22.3 million to serve commercial customers, but they would pay only $20.3 million in rates.

The Raftelis study shows that wholesale customers would pay nearly 40 percent less than it costs Wichita to deliver water to them. They are paying less than $2.8 million, but it costs $3.9 million to serve them.

To begin to close that gap, Raftelis recommended a residential rate increase for water and sewer that would range from 2.6 percent to 3.9 percent, depending on how much water the customer used. That would mean an average increase of $1.18 to $3.58 on monthly bills.

Commercial customers would see an increase of 8.3 percent, for an average jump of $34.64 monthly. Industrial customers would get a bump up of 8.21 percent, averaging $3,202.64 more monthly.

The recommended rate increase for wholesale customers would be 14.5 percent.

The plan calls for subsequent rate increases in coming years; the gap would be closed for residential customers by 2016. Commercial customers would be paying 100 percent of the cost of their water service by 2016. Wholesale customers would be at 100 percent by 2015.

"Everybody pays 100 percent of the cost to provide service to them, regardless of class," Layton said.

The city staff backed Rafetelis' recommendation.

The Advisory Committee, a business-dominated panel appointed by Brewer, wants to leave the current rate structure in place for 2012 and do more review before 2013. The committee wants a longer period of time to phase in rate increases for wholesale customers.

During the meeting, Brewer noted that the city continues to ask customers to conserve. But then when usage is down, he said, "We say, `Oh, by the way, we're going to charge you more because you aren't using enough water so we can meet costs." '

"That's the old model," Layton replied. "The new recommendation today will reward those who conserve."

Rate increases have been necessary because future water usage was overstated in 2006 and 2007, city staff said. It peaked at 20.67 billion gallons in 2006.

But the current annual forecast developed by Raftelis calls for a fairly straight line of about 18 to almost 19 billion gallons through 2021.

Layton said he was directed by the council to bring credibility back to the Water Department.

"You wanted predictability and reliability," Layton said. He said Raftelis' model does that.

Thomas Beckley, a Raftelis consultant, told the council that 90 percent of water costs are fixed.

Layton said the city has cut back capital improvements to support demand for more water, but higher rates are still needed to pay for maintenance to the current system.

"Part of the problem is that over the last several years we've deferred maintenance on our system," he said. "We have to make sure we don't lose water underground. Some cities lose as much under ground as they use in a day."

Layton said higher rate increases for commercial customers shouldn't discourage businesses from coming to Wichita or drive existing ones away.

He said the city has looked at 10 or 12 cities and found that Wichita was almost at the bottom for commercial rates.

"We have very competitive rates," Layton said. "Also, we're not really sure water and sewer should be considered an economic incentive."

He said the city has other financial incentives to encourage businesses.

Layton said he hopes to have a water rate plan for the council to vote on by November.